The launch of Oortfolio™, a liability insurance risk modeling platform from Praedicat, could stimulate innovation in liability insurance risk transfer, such as attracting new capital by enabling it to better quantify liability exposures and even liability catastrophe bonds. Oortfolio has been announced by Praedicat and will offer the industry “an unprecedented emerging risk underwriting and aggregation risk management capability to liability insurance and reinsurance,” according to the firm.

Oortfolio provides users the ability to analyse portfolios of risk using a forward-looking modeling approach, mining the exposure in order to quantify the liability risk inherent in them.

In this way it is a totally new approach to liability risk modeling and will assist in the quantification of liability catastrophe events, aggregations and provide greater transparency and granularity on the exposures a re/insurer holds within its book.

“Oortfolio moves away from the backward-looking paradigm of using historical claims data to understand risk, and brings together a full complement of modern data, technology and modeling to create forward-looking liability insurance operations,” explained Robert Reville, CEO of Praedicat.

Praedicat explains:

Praedicat’s technology, together with its team of scientists, mines the text of peer-reviewed science for hypotheses that commercial products or activities are causing harm. Using these data, Praedicat has built a probabilistic microsimulation model of future mass litigation consistent with the underlying science. Praedicat uses this microsimulation model and data collected on the business activities of specific companies and all industries to estimate their exposure to litigation.

With Oortfolio, insurers and reinsurers can measure the total risk in portfolio, as well as the risk in the underlying companies and industries that it is exposed to. That can help to identify liability exposures that may not manifest themselves for years to come.

Oortfolio has already been licensed by Swiss Re, one of the world’s largest reinsurance firms.

Andrea Scascighini, Head of Casualty Accumulation Solutions at Swiss Re, commented; “Liability insurance covers companies across many industries, including those that create new technologies, innovations, products and practices that haven’t yet generated claims.

“Managing these risks requires a new kind of data and modeling – forward-looking modeling – which Swiss Re is bringing to the market both through its own models and through partnerships with independent modelers like Praedicat.”

It is hoped that Oortfolio will also assist re/insurers in managing the increasing regulatory oversight required of casualty underwriters.

“There is increasing regulatory focus on the stability of financial institutions, from Federal Reserve oversight in the United States to Solvency II in Europe,” explained James Thomson, Praedicat’s Chair and former CEO of RAND, a nonprofit public policy research institute.

“Oortfolio represents an important step forward for casualty insurance to be more transparent and for capital to be managed with the same rigor as other financial products, giving confidence to customers and the financial system as a whole,” he continued.

Praedicat notes that catastrophe risk modeling has helped the insurance and reinsurance industry to develop, with risk modeling becoming “part of the fabric of property insurance.”

The firm hopes that Oortfolio can become the same for the casualty and liability insurance or reinsurance market, helping to advance its development, enhance the coverage it offers, attract new capital and also develop a casualty or liability insurance-linked securities (ILS) market.

The adoption of risk models by the re/insurance industry has; “Led to significant market growth as well as the entry of new sources of capital, such as from hedge funds, to the property insurance market. In addition, it has driven both substantial product innovation and new types of insurance risk transfer, such as catastrophe bonds.”

“We call it the Golden Age of Casualty,” Reville said. “Casualty has been the neglected sibling of property for thirty years, but new technologies from the field of data science, combined with Praedicat’s innovative modeling, have made it possible for casualty to have its turn. The Golden Age is dawning. We are proud to deliver this capability to the market.”

Praedicat was originally launched from a research and development initiative between The RAND Corporation, a nonprofit research organization, and well-known catastrophe risk modeling firm Risk Management Solutions, Inc. (RMS). Both companies remain investors in Praedicat.

“Many had thought liability catastrophe modeling impossible,” commented Hemant Shah, CEO of RMS and a Board member of Praedicat. “What Praedicat has done is a remarkable technical achievement. Property and casualty (re)insurers can now rigorously quantify both their property and liability risks.”

The use of forward-looking risk models, big data analysis and technologies such as machine learning, all promise to advance liability risk modeling dramatically and ultimately this will help the ILS market to increasingly enter the casualty reinsurance sector.

Oortfolio is a new leap forwards for liability risk modeling and will offer the industry significant new insights today into the liabilities inherent in portfolios of insurance and risk. That should be enticing for the larger ILS fund managers looking for new diversifying risks to add to their portfolios.